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ARTICLES
Court Allows Forward Citation Analyses in Royalty Determination
In Comcast v. Sprint, the district court allowed Comcast’s patent damages expert to employ “forward citation analyses” in two aspects of his reasonable royalty opinions, finding that the methodology was sufficiently reliable. Comcast accused Sprint of infringing its ‘870 patent, which Comcast acquired in a purchase of 36 patents from Nokia for $600,000. Sprint’s expert concluded that a reasonable royalty would be in the range of $300,000 to $1.5 million. He relies primarily on this Nokia patent purchase, and corroborates his opinion by using forward citation analysis and other agreements. Forward citation analysis is “a method of estimating the value of a particular patent based on the number of times the patent is cited by later patents.” Using this process, the expert concluded that the ‘870 patent represents 2.5% of the total value of all patents in the sale. The resulting $15,000 value “corroborates” his overall opinion on value. Comcast argues that this method has been “discredited,” citing Finjan v. Blue Coat (which we previously covered) and an academic paper. Yet the court concludes that Finjan “does not reject forward citation outright,” and that “a single academic paper—the Penn Paper—is not sufficient to rebut decades of literature supporting forward citation analysis.” The court ... Read MoreE.D. TX Court: Damages Expert Improperly Used Surveys for Royalty Apportionment
In this patent infringement case about mobile handset digital watermarking technology, a Texas court rejected the royalty rate methodology of plaintiff’s expert because the expert failed to explain, mathematically, how his survey data led to his 10% factor to apportion the value of the handset to the patented technology. Further, he failed to show how the patented features compared to the features that were the subject of the surveys. Here, plaintiff’s expert Leon Hawk Travis did not argue that the patented technology was the basis of customer demand for the mobile handsets, instead opining that the smallest salable unit of the accused product was the handset itself, not the internal chipset. He then set out to apportion the total value of the handsets to account for the patented technology, and arrived at an apportionment factor of 10%. In doing so, he relied upon two consumer surveys that indicate that consumers value broader security features. The court accepts that these surveys may not provide an exact analog for the patented technology, but leaves that as a question of the weight the jury gives his testimony. However, the court excludes the expert’s opinions for two reasons. First, he did not separate out the patented ... Read MoreCAFC Yet Again: An Infringer’s Profitability Is Not an Upper Limit to a Reasonable Royalty
In Aqua Shield v. Inter Pool, the Federal Circuit explains in a bit more detail why an infringer’s profitability really, for sure, we-mean-it-this-time, definitely does not represent the ceiling on a reasonable royalty. It made the same point in its past decisions in Douglas Dynamics v. Buyers (Fed. Cir. 2013), Golight v. WalMart (Fed. Cir. 2004) and even back in the 1989 decision in State v. Mor-Flo (“There is no rule that a royalty be no higher than the infringer’s net profit margin.”). The court first notes that an infringer’s actual profits are only relevant “in an indirect and limited way—as some evidence bearing on a directly relevant inquiry into anticipated profits.” The court explains that “an especially inefficient infringer—e.g., one operating with needlessly high costs, wasteful practices, or poor management—is not entitled to an especially low royalty rate simply because that is all it can afford to pay without forfeiting or unduly limiting its profit if it uses the patented technology rather than alternatives.” The court finds that “the district court did not err in considering [defendant’s] profits. But it did err in treating the profits [defendant] actually earned during the period of infringement as a royalty cap.” By incorrectly focusing on ... Read MoreFed. Cir.: An Infringer’s Profitability Is Not an Upper Limit to a Reasonable Royalty
The CAFC has ruled in the past that an infringer’s net profit margin is not the ceiling capping a reasonable royalty (Golight v. WalMart, 2004) and here it again finds a lower court erred by doing just that in Douglas Dynamics v. Buyers Products. Following a jury verdict that found two patents valid and infringed, the district court in 2011 denied plaintiff Douglas Dynamics a permanent injunction and assigned an ongoing royalty to Buyers. In a post describing that opinion, we explained how the lower court applied the discredited 25% Rule to determine the ongoing royalty rate. The lower court also wrote: “the royalty should realistically leave some room for profit, either on the initial sale or on ancillary ones; otherwise it makes little sense to enter into an ongoing royalty at all. In light of all of these considerations, Douglas’s suggested royalty rates are simply too high.” Here, the CAFC first finds that “the district court abused its discretion by applying the infamous 25% rule of thumb, which this court held in Uniloc was fundamentally flawed. [citing Uniloc] Second, the district court clearly erred by limiting the ongoing royalty rate based on [defendant’s] profit margins. This court has held that an ... Read More
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